Bernard Matthews Expansion Strategy (NYU Stern)

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Bernard Matthews Expansion Strategy (Competitive Strategies in the Marketplace (NYU Stern - Czepiel)

Bernard Matthews Expansion Strategy (Competitive Strategies in the Marketplace (NYU Stern - Czepiel)

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  • Welcome to the board – gathered to discuss the current state of a company we all care about deeply
  • Brief overview of our rich history. Note that BM virtually created the UK turkey market, esp. Valu add.
  • According to Prof ”80% of BM revenue comes from value added” – where did he get this from??Created this market – very strong here
  • Note that Hillsdown aquired Swift in 1990, raising their market share to 29%Also, totaled, PL have 56% market shareThe market has been commoditizing and consolidating – subject to ebbs and flows of agricultral cycles and just coming off of several tight years that saw the exit of many weaker competitors Hillsdown is laegestprodcuer of PL labels
  • Note that Hillsdown aquired Swift in 1990, raising their market share to 29%Also, totaled, PL have 56% market shareThe market has been commoditizing and consolidating – subject to ebbs and flows of agricultral cycles and just coming off of several tight years that saw the exit of many weaker competitors Hillsdown is laegestprodcuer of PL labels
  • Note that Hillsdown aquired Swift in 1990, raising their market share to 29%Also, totaled, PL have 56% market shareThe market has been commoditizing and consolidating – subject to ebbs and flows of agricultral cycles and just coming off of several tight years that saw the exit of many weaker competitors Hillsdown is laegestprodcuer of PL labels
  • Based on hatched in 1989Long lead time between acquiring breeding stick and processing
  • Only branded poultry in Sainsbury Tesco and Gateway – channels and access are currently a competitive advantage
  • First time they will be able to export processed va;ue added products to Europe – exciting new markets but also challenegs – do not have the brand equity there, different cultural and consumption habits, etc
  • The market potential within this segment was large (pag. 212)
  • (a) The entry into new meat segments helped the company diversify its sales and profits.
  • increase competition forced smaller players out the mkt salmonella scare hurt poultry industrylisteria scare specifically in turkey market drought of 1988 led to increased soya meal prices retail power (discuss more in detail later)
  • UK poultry, inclusive of chicken and turkey, was the only sector of the meat trade to sow any growth Processed turkey begins to become synonymous with chicken Continued growth in turkey consumption is expected demographic trends increase in usage of microwaves higher disposable incomes desire for less fat
  • Protein outlook in the UK Highlight on Turkey This will be the focus of our presentation and recommendations Discuss per capita consumption in relation to the populationFactor in population growth and the growing interest in the turkey market both in the UK and the neighboring EU markets
  • Enlarge data pointsLook for thomas’ revenue numbers slideTalk about abbhoration years
  • BM commands 5.6% premium on its products and is still the ONLY consistently stocked nationally branded poultry line in the UKs top retail locations Highly suggests that we do no
  • In 1986, Matthews profits for processed turkey were 271%higher than those of whole turkeys Sales for roasts (inclusive of both turkey and beef) reached record highs in 1986-87, surpassing the £50M mark for two consecutive yearsBy 1989, Matthews share of the processed turkey market was approximately 75%
  • BM is the leading turkey producer by volume and tonnage Strong branding has allowed it to fall at the ‘Top of Mind’ of its consumers Spent money and time building BM’s brand equity to $30M Private label demand is pushing the whole turkey market in a new direction Turkey producers are left asking themselves whether or not to supply PLs to retailers and how this will affect their relationships with retailers in the long run
  • BM Presence: Germany – had entered German market since 1979Government Support: France has restrictive policies, where it limits poultry farming to local small farmers only + EC grants to domestic companiesLow Competitor Strength: Italy probably lowest, but mostly because unknown. Germany was decent, but does not seem to have national brand. France has national brand in Doux SA. Largest poultry producer in Europe, and 3rd in the world. Close distance from BM HQ:
  • Which leads you think what would happen if they increased their export numbers. How much more dominant can it be? How is the market looking?
  • Retailers partnering with one another could be a major blow to BM and the industry overall Fall further behind in share by volume AND tonnes Additional data slide to follow would be nice
  • BM is the leading turkey producer by volume and tonnage Strong branding has allowed it to fall at the ‘Top of Mind’ of its consumers Spent money and time building BM’s brand equity to $30M Private label demand is pushing the whole turkey market in a new direction Turkey producers are left asking themselves whether or not to supply PLs to retailers and how this will affect their relationships with retailers in the long run
  • Protein outlook in the UK Highlight on Turkey This will be the focus of our presentation and recommendations Discuss per capita consumption in relation to the populationFactor in population growth and the growing interest in the turkey market both in the UK and the neighboring EU markets
  • Retailers partnering with one another could be a major blow to BM and the industry overall Fall further behind in share by volume AND tonnes Additional data slide to follow would be nice
  • Protein outlook in the UK Highlight on Turkey This will be the focus of our presentation and recommendations Discuss per capita consumption in relation to the populationFactor in population growth and the growing interest in the turkey market both in the UK and the neighboring EU markets
  • Retailers partnering with one another could be a major blow to BM and the industry overall Fall further behind in share by volume AND tonnes Additional data slide to follow would be nice
  • Enlarge data pointsLook for thomas’ revenue numbers slideTalk about abbhoration years
  • increase competition forced smaller players out the mkt salmonella scare hurt poultry industrylisteria scare specifically in turkey market drought of 1988 led to increased soya meal prices retail power (discuss more in detail later)
  • Retailers partnering with one another could be a major blow to BM and the industry overall Fall further behind in share by volume AND tonnes Additional data slide to follow would be nice

Transcript

  • 1. Jason Rawlins, Rachel Travis, Thomas Schmid, Cintia Arrieta, Ramsy Safadi, Tony Lew
  • 2. PRESENTATION OUTLINE 1. Strategic Situation 2. Recommendation Preview 3. Analysis 4. Strategic Alternatives 5. Recommendation
  • 3. 1. Strategic Situation
  • 4. Recommendation Strategic Alternatives The challenge: How will we ensure continued growth in sales and profits in the new decade? Bernard Matthews is the Steve Jobs of Turkeys We are very successful but facing many complex decisions Analysis Recommendation Preview Strategic Situation
  • 5. 1950 Launch of first value- added turkey roast Became the biggest turkey farmer in Europe 1968 Matthews bought first 20 turkey eggs Built first custom turkey factory in the UK 1959 1963 Developed the first mini turkey Company went public 1971 1974 19801976 19871984 1987 Acquired Armour Le Grys and started producing self-basting turkeys First TV AD Campaign Launched value- added red meat roasts 100 millionth turkey roast sold Launched fish products
  • 6. UK Turkey Market Bernard Matthews Is The #1 Turkey Producer In The UK Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation
  • 7. 18% 11% 15% 21% 5% 30% U.K. Market Share Whole Turkeys 1989 Mark & Spencer Bernard Matthews Swift Hillsdown Private Label /Other Sainsbury But Our Position Is Threatened Private Label Brands And Hillsdown Are Gaining Market Share Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation
  • 8. 18% 11% 15% 56% U.K. Market Share Whole Turkeys 1989 But Our Position Is Threatened Private Label Brands And Hillsdown Are Gaining Market Share Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation Bernard Matthews Swift Hillsdown Private Label /Other
  • 9. But Our Position Is Threatened Private Label Brands And Hillsdown Are Gaining Market Share Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation 29% 15% 56% U.K. Market Share Whole Turkeys 1989 Bernard Matthews Hillsdown Private Label /Other
  • 10. 29% 27% 22% 15% UK Turkeys Hatched 1989 The Future Of UK Turkey Production In 1991 Hillsdown Will Produce More Turkeys Than Us Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation Bernard Matthews Hillsdown Unigate Sun Valley
  • 11. Large UK Retailers Are Consolidating Over 60% of Food Sales are handled By 5 Leading Supermarkets Threatening our margins and channel supremacy Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation Sainsbury £4,791.5M M&S £4,577.6M Tesco £4,119.1M Gateway £3,768.5M Argylll £3,236.3M £135.758M ★ ★★
  • 12. Regulatory Changes EC Is Opening Borders To Freer Trade, Including Processed Meats Bernard Matthews 1990 UK 95% Export 5% Bernard Matthews % of Sales (1990) Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation
  • 13. Competitive Advantage: Technology We Need Continue To Utilize Technology And R&D Technology And R&D Focus on invention, innovation, and vertical integration Patented processes Control inputs to keep costs low One of the lowest cost producers in the world Rapid new product development 80% of profits in last decade are from new products Two were Food Product of the Year Patents prevent imitation PROCESS PRODUCT New market entries have succeeded when utilizing proprietary technology Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation
  • 14. Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation Competitive Advantage: Brand Brand Equity Worth Over £30M And 98% Consumer Recognition In The UK
  • 15. Turkey Other Protein Brand Private Label Europe UK Processed Turkey Whole Turkey Decisions For The Future Bernard Matthews Has Many Choices/Opportunities To Balance Recommendation Strategic Alternatives Analysis Recommendation Preview Strategic Situation Technology - License Technology – Internal use Only
  • 16. 2. Recommendation Preview
  • 17. Gost Framework For UK Market • Maintain #1 Market Leadership in Branded Turkey Market in UKGoals •Increase Processed Turkey Sales by 8% CAGR in UK •Maintain Whole Turkey Sales of 20% or Accept Decrease up to 15% •Maintain Private Label Turkey Sales of 5% or Accept Increase up to 10% Objectives •Invest in Technology and Marketing for Processed Turkey •Maintain Whole Turkey and Private Label Investment and Sales Strategy •Invest £4.5M in Technology to Develop Additional Innovative Products •Increase Marketing by £1M to Promote New Products and Grow the Market •Continue to Only Sell PL if Retailers also Sell Branded BM Products Tactics
  • 18. • Be #1 Branded Processed Turkey Market Leader in EuropeGoals •Increase Turkey Sales by £200M Total in 5 years in Continental EuropeObjectives •Invest in Establishing Business in a European Country •Invest in UK Turkey Production to Export to European Countries •Invest in Marketing in Europe to Establish Brand Strategy •Invest £3.7M in UK Farm to increase Turkey Hatching to Export to Europe •Invest £29.6M to Build Turkey Farm and Factory in Germany •Invest £9.6M in marketing over 6 years in Europe Tactics Gost Framework For European Market
  • 19. 3. Analysis
  • 20. NON - TURKEY ANALYSIS
  • 21. Bernard Matthews’ New Product Lines • FOOD SERVICE  Bernard Matthews used their knowledge to create a range of turkey products and introduce them to school meals.  In 1990 only 10% of the company‟s sales came from food service.  The U.K school system served over 3.5 million meals per day.  Its product range was ideally suited to this market.  Children were used to Matthews products Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 22.  RED MEATS  FISH Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Lamb Pork Beef Bernard Matthews’ New Product Lines
  • 23. 149 173 199 182 220 259 285 341 338 383 420 435 494 594 605 316 359 381 392 415 100 200 300 400 500 600 700 1984 1985 1986 1987 1988 Sales Processed Fish Fresh Fish Prepared (incl fish products) Frozen (incl fish products) Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis UK Fish Sales
  • 24. Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Red Meat Market 100 89 90 94 96 87 85 78 80 79 84 100 92 85 85 86 91 81 89 88 84 86 100 99 112 113 124 122 124 127 130 122 123 40 50 60 70 80 90 100 110 120 130 140 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 PERCAPITACONSUMPTION Beef/Veal Mutton/Lamb Pork Meat Market declines Red Meat Roast launched BM Red meat gained 1-2% share
  • 25. Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Bernard Matthews – Non Turkey Market U.K. MARKET SIZE % Held by Matthews 25% 50% 1% 3% 2% 1.5% 0% 10% 20% 30% 40% 50% 60% Whole Turkey Processed Turkey Beef Lamb Pork Chicken
  • 26. UK MARKET ANALYSIS
  • 27. Since 1988 Industry Capacity Decreased Approximately 20%  Salmonella and listeria scares  Drought which increased soya meal prices  Higher barriers for entry for new manufacturers  Increased competition amongst manufacturers Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Industry Capacity
  • 28. UK Turkey Production Continues To Grow Despite Market Conditions Interest and taste is growing in the UK for Whole and Processed Turkey products 190000 195000 200000 205000 210000 215000 220000 225000 1988 1989 Turkey Production (000 m tonnes) 10 % Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 29. Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Leading Manufacturers In UK Will Supply 93% Of The Turkey Meat In 2 Years Percentage of Turkeys Hatched 0 20 40 60 80 100 120 Others Unigate Sun Valley Bernard Matthews Hillsdown Power of leading manufacturers is still growing as smaller competitors remain on the sidelines
  • 30. Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Hillsdown Holdings Matthew’s Largest Competitor High Volume Low Margin Found value in approaching the whole turkey industry as a commodity market  Corporate Strategy  Minimum overhead  High volume, low margin  Purchase failing competitors  Expand capacity  Leverage existing brand names
  • 31. No Share For Independent Operators Major Retailers Fight Amongst Themselves In Attempts To Capture Market Share From Each Other Retail Competition Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 32. Major Margins Retail Demands Aim To Squeeze Manufacturers •Data: Current gross margin provided to retail •Interpretation: Retail wants more – looks to private labels Retailer Margins on BM+25% •Data: Price differential between Sainsbury private label turkey steak and Matthews label •Interpretation: Private label manufacturers offer more competitive margins at retail Price Premium 5.6% •Data: Under 5% of BM sales came from private labels •Interpretation: Can retail power surpass the brand power of Bernard Matthews? BM Private Label Sales < 5% Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 33. Bernard Matthews Brand Equity Not To Be Lost On Private Labels Bernard Matthews is the ONLY consistently stocked nationally branded poultry line Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 34. Bernard Matthews Profits Whole and Processed Turkey contributions Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis PercentofProfits Poundsinmillions -2 0 2 4 6 8 10 12 0 10 20 30 40 50 60 70 80 90 100 1984 1985 1986 1987 1988 1989 Whole Turkey % Processed Turkey % Whole Turkey $ Processed Turkey $
  • 35. Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis BM Competitive Advantage over Hillsdown Cost Retailer Relationship Brand Recognition Technology Product Offerings Bernard Mattews Hillsdown
  • 36. EUROPEAN ANALYSIS
  • 37. Europe Has Large Turkey Market UK 20% Other Europe 80% TOTAL EUROPEAN MARKET SIZE £1.2B UK Other Europe Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 38. ...and Room To Grow 3.4 2.85 UK Other Europe Per Capita Turkey Consumption (kg) Europe 20% lower than UK Avg Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 39. .. Even More Room to Grow In Processed Processed 10% Whole Turkey 90% European % of Turkey Sales Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 40. Europe Is Very Diverse  12 countries  Each w/ different languages  Each w/ different cultural background  Varied Turkey Consumption  Lowest Turkey consumption is .4Kg/capita in Denmark  Highest Turkey consumption is 4.9Kg/capita in France Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 41. UK West Germany France Italy. -100 -80 -60 -40 -20 0 20 40 60 -1 0 1 2 3 4 5 6 TurkeyShortage(000mtons) Turkey per Capita Consumption (kg) EC Turkey Shortage vs Consumption w/ Population Size Germany, Italy, UK, France Markets Look Attractive Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Spain Portugal Ireland
  • 42. Major Countries Qualitative Comparison UK France Germany Italy BM Presence 3 2 3 2 Government Support 2 1 2 2 Competitor Strength 1 1 2 2 Close Distance from BM HQ 3 3 2 1 Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis (3=Favorable; 2=Neutral/No Data; 1=Not Favorable)
  • 43. Bernard Matthews Does Very Little Export UK 95% Export 5% Bernard Matthews % of Sales (1990) Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 44. 1979 19861984 1985 1992 US: License technology to Sara Lee "not as successful” JV w/ Doux S.A fail as Retailers find alternative suppliers Germany: Competitors Enter Market and bring price down ? JV w/ Doux S.A with Small chicken gain 10% of UK Frozen chicken market New Zealand: Build Lamb factory in NZ with great success BM has major role in setting Turkey standards /Export code in EC Germany: BM Enter Market with Oven-Ready turkey profitably What Has BM Done So Far In Exports or with Foreign Companies? Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 45. 4. Strategic Alternatives
  • 46. For the UK the strategic alternatives are as follows
  • 47. Competition is strongest in private label segment  Profitability  Higher margin on Bernard Matthews products  Competitive strengths  Doesn’t match our brand strength  Retailer power  Retailers encourage us to expand private label for whole turkey  Retailers encourage Hillsdown to increase private label for processed turkey -> Avoid direct competition by focusing on brand Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation
  • 48. For the UK the strategic alternatives are as follows
  • 49. The Profitability Of Whole Turkeys Declined In The Past Years  Whole Turkey:  Commoditization/affected by market trends  Herfindahl-Hirschman Index around 1200 (<1000 competitive market) -> Compared to over 5600 processed turkeys  Big international players  Relative market share to Hillsdown/Swift 0.52 Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation *1987: estimated *
  • 50. The strategic alternatives for the UK are as follows
  • 51. We Are Competitively Advantaged In Processed Turkeys… Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Competitive advantage Use our strengths countering Hillsdown/Swift 1986: 82% of profits from processed meats Brand 98% awareness over over £30M brand value Technology Patents still valid Product range Broad offering of processed turkey Value chain/production Vertically integrated Cost competitive Distribution Only branded poultry at most of big retailers
  • 52. … And There Is Still Growth Potential For Processed Turkey In The UK  Our market share at processed turkey is 75%  Based on previous years forecast of 4% annual growth in poultry consumption without additional from our side  The UK turkey consumption is below large European countries Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation +29% +44%
  • 53. For Europe there are two main strategic options Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation
  • 54. European Community Will Soon Be Open For Processed Turkey  Finally European market will be open for value-added products  Turkey market size France, Italy and W. Germany is 3.5 x UK market Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation
  • 55. The focus will be on the most attractive markets Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation
  • 56. The focus will be on the most attractive markets Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation  Market segment attractiveness  BM strengths  Competitive response
  • 57. Continental Europe Provides An Opportunity To Develop Processed Turkey Segment  Processed turkey in Continental Europe significantly below UK market   Largest poultry producer in Europe: French Doux S.A.  Most of sales are commodity products  Large percentage being sold to non-EC markets -> Avoid direct competition on unprocessed turkey Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation
  • 58. 5. Recommendation
  • 59. Defend UK With Investments In Advertising And Innovation  Increase R&D budget by £4.5 million pounds to strengthen current competitive advantages  Product R&D to develop consumer products that exploit current patents  Process R&D innovation to cut costs  File new patents  Increase advertising by £1 million pounds to market new products and grow the overall market  TV advertising  Print advertising  In-store promotions Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation
  • 60. 88% Probability Of Positive NPV From Additional Investments Into UK Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation  Average: £6,115,398 (UK 1990)  $18,941,834 (US 2013)
  • 61. Entry Into Europe Will Follow A Three-phased Approach Revenues begin from Italy and other EC countries as marketing expands Harvesting turkeys generate £2.3 million in profits in 1994 £1.4 million marketing pounds invested to build brand Revenues begin from Germany and France as marketing expands Harvesting turkeys generate £3 million in profits in 1992 £1.8 million marketing pounds invested to build brand Invest for entry into Italy and other EC countries (Spain, Portugal, and Ireland) £2.7 million pounds in building capacity and inventory Invest for entry into Germany (whole and processed) and France (processed only) Build infrastructure in Germany  3 year build-up  £5 million pounds Lay extra eggs in UK for exporting  £230 k pounds Building relationships with retailers in Germany and France Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation
  • 62. European Investment Will Break Even In 4 Years -£6,000,000 -£4,000,000 -£2,000,000 £0 £2,000,000 £4,000,000 £6,000,000 £8,000,000 £10,000,000 £12,000,000 £14,000,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Cash Flow Projections - Entry into Europe Germany France Italy Others Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation
  • 63. 82% Probability Of Positive NPV From EC Entry Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation  Average: £62,779,652 (UK 1990)  $194,453,694 (US 2013)
  • 64. Risks And Other Considerations  UK  Market is saturated – unable to grow market through advertising  Mitigated through low production costs and new capacity to export surplus  Entrance of Aldi’s discount chain into the UK could squeeze margins further  Europe  Risk that EC community will not be formed and processed export restrictions will continue  Mitigated by setting steel in Germany  Customer needs may be very different than the UK  Mitigated by deep consumer research  Exchange rate risks  Need to set a hedging strategy  Some risks can be mitigated through our two-phase approach  Both  High debt/equity ratio  Wide swings in commodity prices  Sensitive to consumer safety fears Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation
  • 65. Summary Of Recommendations Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation UK Increase R&D budget Increase Advertising Increase Processed Turkey Sales Maintain Whole Turkey & Private Label £6.1 NPV from £5.6 investment Maintain Retailer Relationships EC Export initially from UK Build EC HQ in Germany 3-phased entry into (1) France, Germany, and (2) Italy, Spain, Portugal, and Ireland focused on Branded Processed Turkey £62.7 NPV from £9.3 investment Invest in Marketing to Build EC Brand
  • 66. Management Request For Approval We request the following investments to protect our position in the UK:  £0.65 million additional investment in 1990  £5.60 million investment over the next 5 years We request the following investments to begin our foray into Europe:  £1.89 million initial investment in 1990  £9.26 million investment over the next 5 years Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation
  • 67. THANK YOU
  • 68. APPENDIX
  • 69. ANSOFF GROWTH MATRIX Current Market New Market Current Product UK, Turkey Europe, Turkey New Product UK, Fish etc. Europe, Fish etc.
  • 70. PERFORMANCE QUALITIES Performance Categories BM Hillsdale Unigate Price Lowest ? ? Small Size Smallest Convenience Most Variety Most Freshness Best Low cook loss (Shrinkage) Best Easier to cook Best Taste Best
  • 71. ADVANTAGES It is easier to gain share in growing markets: Share gains in growing markets have greater long- run value Growth markets experience less price pressure Early entrants gain experience advantages Early entrants gain technologically Early can deter potential competitors
  • 72. DISADVANTAGES  Too many competitors may enter  Technology may change  Resource needs are high  The promised growth may not arrive  Key success factors may change
  • 73. ...but still #1 in Europe Company Turkey Producer Ranking in Europe Bernard Matthews 1 Hillsdown 2 Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 74. Germany, UK, Italy, France Have Largest Turkey Market Size UK W.Germany France Italy Spain Holland Denmark Belgium Greece Portugal Ireland 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 0 1 2 3 4 5 6 Population(millions) Per capita consumption (kg) Population vs Per Capita Turkey Consumption Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 75. Some Potential Exists For Spain, Portugal And Ireland UK W.Germany France Italy Spain Holland Denmark Belgium Greece Portugal Ireland 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 0 1 2 3 4 5 6 Population(millions) Per capita consumption (kg) Population vs Per Capita Turkey Consumption Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 76. ISSUE TREE: EUROPEAN MARKET European Market? What are the most profitable and largest geographic markets? Competition? Market size? Current profit margins? Market structure? Key success factors? Competitive rivalry? Risks? Consumers? Turkey consumption & current trends? Demographics? Acceptance by retailers & other distribution channels? Brand recognition? Protein buying habits? Segmentation? Regulatory risks? Marketing Retailers and distribution? Growth? Household size? General cooking/eating household habits? Power of retailers/others? Economic growth? Reception to advertising? Limited experience outside UK? Build out? Startup costs Partner? Acquire? Pricing? Investment? Political risks? Expected margins>Profitability?
  • 77. RACHEL
  • 78. 19% 26% 11% 5% 14% 26% U.K. Market Share Oven Ready Turkeys 1989 Hillsdown Barnard Matthews Other Manufactureres Marks & Spenser Sainsbury Other Private Labels BUT HIS POSITION IS THREATENED Hillsdown is signalling that they are going after Bernard Matthews’ key segments
  • 79. JASON
  • 80. Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Value Map Bernard Matthews Vs. Hillsdown Price Quality Hillsdown Bernard Matthews  Price Only  Price  Performance
  • 81. Top of Mind Brand Recall Brand Recognition Unaware of Brand By 1990 BM Boasts A Brand Awareness Level Of 98% Bernard Matthews Hillsdown $30MM to achieve this level of consumer awareness Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 82. MARKET FACTS (1989) Country Population (millions) Production % Change production Exports Imports Per capita consumption (kg) UK 56.8 220,000 10 32,000 5,000 3.4 Turkey (000 m tons) • The UK is the third largest producer of Turkey in the EU region • 27% of Turkeys hatched in UK belonged to BM • Production has increased 10% over the last year • Interest and taste is growing in the UK for Whole Turkey and Processed Turkey products
  • 83. UK whole turkey share by volume (1989) 29% 15% 56% Hillsdown (Buxted/Twydale) + Swift Barnard Matthews Private Label/other brands  Bernard matthews has the smallest whole turkey share in the UK  Private label brands are prevalent in the UK  Hillsdown provides both branded products and private label turkeys REINFORCE but remove graph
  • 84. COMPETITION NEAR AND FAR • Give background on competitors, past and present • Attractive/reactiveness with Doux •Spider graph • Cost • Price • Brand recognition • Technology • Product offerings
  • 85. BMS CORE PRODUCT MIX IN THE UK Processed Turkey Other Meats Whole Turkey
  • 86. UK WHOLE TURKEY SHARE METRICS 0 10 20 30 40 50 60 Hillsdown Matthews Swift Sainsbury Marks & Spencer Private Labels 31 26 19 36 9 52 by Tonnes ('000) ProducerName UK Whole Turkey Share by Tonnes ('000) 1987 Series1
  • 87. RAMSY
  • 88. NPV ASSUMPTIONS: EC  Market penetration  5% initial market penetration  30% annual growth in first 3 years  5% annual growth in later years  Product mix  95% processed turkey  5% whole turkey  Margins  12% profit margin for processed turkey  7% profit margin for whole turkey  Financing  10% WACC  Advertising investment  Approximately 750,000 pounds extra investment per year per country in the first 3 years of entering the country adjusted by relative size of population to UK‟s population  9.6 million pounds total additional investment  Others  2 year production cycle from hatching eggs  3 years are required to build the plant in Germany  Turkey will be exported initially into Germany in 1992 until factory is completed  Assets can be built incrementally proportional to expected revenues per year  Financing and tax costs not considered
  • 89. NPV ASSUMPTIONS: UK • Revenues • 7% increase in sales in the first 5 years • 4% annual growth in later years • Product mix • 95% processed turkey • 5% whole turkey • Margins • 12% profit margin for processed turkey • 7% profit margin for whole turkey • Financing • 10% WACC • Investment costs • 0.5 million pounds incremental advertising • 4.5 million pounds incremental R&D • Others • First new products in market after 1 year • Additional R&D investments can be reduced after 3 years
  • 90. NPV NUMBERS: UK
  • 91. NPV NUMBERS: EC Initial Mkt Share 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Germany 5% £8,704,663 £11,316,062 £14,710,881 £19,124,145 £20,080,352 £21,084,370 £22,138,588 £23,245,518 £24,407,794 Whole Turkey £435,233 £565,803 £735,544 £956,207 £1,004,018 £1,054,218 £1,106,929 £1,162,276 £1,220,390 Proceseed £8,269,430 £10,750,259 £13,975,337 £18,167,938 £19,076,335 £20,030,151 £21,031,659 £22,083,242 £23,187,404 France 5% £17,098,446 £22,227,979 £28,896,373 £37,565,285 £39,443,549 £41,415,727 £43,486,513 £45,660,839 £47,943,881 Processed £17,098,446 £22,227,979 £28,896,373 £37,565,285 £39,443,549 £41,415,727 £43,486,513 £45,660,839 £47,943,881 Italy 5% £15,917,098 £20,692,228 £26,899,896 £34,969,865 £36,718,359 £38,554,276 £40,481,990 Whole Turkey £795,855 £1,034,611 £1,344,995 £1,748,493 £1,835,918 £1,927,714 £2,024,100 Proceseed £15,121,244 £19,657,617 £25,554,902 £33,221,372 £34,882,441 £36,626,563 £38,457,891 Other 5% £4,103,627 £5,334,715 £6,935,130 £9,015,668 £9,466,452 £9,939,774 £10,436,763 Whole Turkey £205,181 £266,736 £346,756 £450,783 £473,323 £496,989 £521,838 Proceseed £3,898,446 £5,067,979 £6,588,373 £8,564,885 £8,993,129 £9,442,786 £9,914,925 Total Revenue £25,803,109 £33,544,041 £63,627,979 £82,716,373 £93,358,927 £106,485,630 £111,809,912 £117,400,407 £123,270,428 Revenues Operating margins Operating Profits 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Germany Whole Turkey £30,466 £39,606 £51,488 £66,935 £70,281 £73,795 £77,485 £81,359 £85,427 Proceseed £992,332 £1,290,031 £1,677,040 £2,180,153 £2,289,160 £2,403,618 £2,523,799 £2,649,989 £2,782,488 France Processed £2,051,813 £2,667,358 £3,467,565 £4,507,834 £4,733,226 £4,969,887 £5,218,382 £5,479,301 £5,753,266 Italy Whole Turkey £55,710 £72,423 £94,150 £122,395 £128,514 £134,940 £141,687 Proceseed £1,814,549 £2,358,914 £3,066,588 £3,986,565 £4,185,893 £4,395,188 £4,614,947 Other Whole Turkey £14,363 £18,672 £24,273 £31,555 £33,133 £34,789 £36,529 Processed £467,813 £608,158 £790,605 £1,027,786 £1,079,176 £1,133,134 £1,189,791 Total Operating Profits £3,076,603 £3,998,988 £7,550,522 £9,815,082 £11,070,279 £12,617,598 £13,248,379 £13,910,699 £14,606,135
  • 92. NPV NUMBERS: EC Capital Investments Cash Flows Capital Investments 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Germany Fixed asset investment £558,610 £558,609.67 £558,610 £1,619,968 £653,573 £849,645 £184,090 £193,294 £202,959 £213,107 £223,762 Changes in working capital £77,485 £23,245 £107,704 £62,530 £116,216 £71,468 £125,600 £81,321 £135,946 Extra marketing £1,027,289 £1,027,289 £1,027,289 £0 £0 £0 £0 £0 £0 France Fixed asset investment £1,097,269 £1,097,269.00 £1,097,269 £3,182,080 £1,283,805 £1,668,946 £361,605 £379,685 £398,670 £418,603 £439,533 Changes in working capital £152,203 £45,661 £211,562 £122,828 £228,281 £140,383 £246,714 £159,738 £267,037 Extra marketing £732,835 £732,835 £732,835 £0 £0 £0 £0 £0 £0 Italy Fixed asset investment £1,021,458 £1,021,458 £1,021,458 £2,962,227 £1,195,105 £1,553,637 £336,621 £353,452 £371,125 Changes in working capital £141,687 £42,506 £196,945 £114,341 £212,509 £130,684 £229,669 Extra marketing £755,282 £755,282 £755,282 £0 £0 £0 £0 Others Fixed asset investment £263,345 £263,345 £263,345 £763,699 £308,113 £400,547 £86,785 £91,124 £95,681 Changes in working capital £36,529 £10,959 £50,775 £29,479 £54,787 £33,692 £59,211 Extra marketing £690,581 £690,581 £690,581 £0 £0 £0 £0 Total Capital Investments £1,885,566 £1,655,879 £4,879,020 £7,915,880 £6,747,432 £7,929,203 £4,086,993 £2,882,834 £1,664,646 £1,481,721 £1,821,964 Total Cash Flows 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Perpetuity Germany -£636,095 -£558,610 -£563,100 -£1,340,865 -£60,038 £1,334,911 £2,059,136 £2,212,651 £2,272,725 £2,436,920 £2,508,207 £25,082,074 France -£1,249,472 -£1,097,269 £221,710 -£1,293,218 £1,239,364 £2,716,061 £4,143,340 £4,449,819 £4,572,998 £4,900,960 £5,046,696 £50,466,956 Italy £0 £0 -£1,163,145 -£1,021,458 £93,520 -£1,328,678 £1,013,406 £2,440,981 £3,765,277 £4,045,991 £4,155,840 £41,558,402 Others £0 £0 -£299,873 -£263,345 -£471,749 -£838,410 -£234,591 £629,315 £970,735 £1,043,107 £1,071,428 £10,714,275 Total Cash Flows -£1,885,566 -£1,655,879 -£1,804,408 -£3,918,885 £801,096 £1,883,884 £6,981,290 £9,732,767 £11,581,735 £12,426,978 £12,782,171 £127,821,706 Present Value PV (BM Label) NPV 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Perpetuity Germany £12,232,892 -£636,095 -£507,827 -£465,372 -£1,007,412 -£41,007 £828,875 £1,162,328 £1,135,440 £1,060,243 £1,033,492 £967,023 £9,670,225 France £27,788,878 -£1,249,472 -£997,517 £183,231 -£971,614 £846,502 £1,686,460 £2,338,807 £2,283,461 £2,133,337 £2,078,485 £1,945,720 £19,457,196 Italy £18,829,796 £0 £0 -£961,276 -£767,436 £63,875 -£825,005 £572,041 £1,252,609 £1,756,529 £1,715,895 £1,602,256 £16,022,563 Others £3,928,088 £0 £0 -£247,829 -£197,855 -£322,211 -£520,587 -£132,421 £322,938 £452,855 £442,379 £413,082 £4,130,817 Total PV £62,779,652 -£1,885,566 -£1,505,344 -£1,491,246 -£2,944,316 £547,160 £1,169,744 £3,940,756 £4,994,448 £5,402,965 £5,270,252 £4,928,080 £49,280,801
  • 93. Entering EC With Current Brand Maximizes NPV £62,779,652 -£109,362,900 £16,457,691 1 NPV of Brand Options Private Label New Brand Existing Brand Strategic Alternatives Analysis RecommendationRecommendation Preview Strategic Situation
  • 94. EXTRA SLIDES
  • 95. For entering a specific country we need to address the following questions. Enter a new country Export Build new operations Joint Venture/M&A Whole Turkey Processed Turkey Whole & Processed BM brand Other Brand Private Label Analysis Recommendation Strategic Alternatives Recommendation Preview Strategic Situation
  • 96. C: ANALYSES OF FACTS (10- 12MINS)  Analysis in neutral form  Compares competitive offering feature by feature Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis
  • 97. UK MARKET ANALYSIS  Separate presentation slides by Jason!
  • 98. ATTRACTIVENESS/RESPONSIVENE SS  For UK Market  European market
  • 99. COMPETITIVE ADVANTAGES Leverage Verticals BM not as affected by commoditization due to its competitive advantages in both Farming & Processing FARMING MANAGEMENT • Operating 21 Turkey farms •Outsourcing production of other meats in our portfolio • Operating our own feed mill •Lower costs and more control over feed quality PROCESSING & PRODUCTION • Development and patenting of machines like the „de-boner‟ to ensure automation and speed in processing • R&D receives significant attention directly from Bernard to ensure that the group‟s efforts remain aligned with the needs of the customers
  • 100.  Also obtained patents on foods, not just machines  Turkey Breast Roast  Self-Basting Turkeys  Ownership of these products and machines allow us to enjoy uninterrupted success in the new processed foods categories we created (FOR NOW – what happens once patents expire?)  Should BM hoard the technology or license it out for additional revenue stream???  See short-lived Sara Lee partnership Competitive Advantages Intellectual Property
  • 101. DEFENSIVE POSITION  Direct attacks from retailers and their private label brands  BM does not negotiate with terrorists (j/k)  Partnerships only occur under strict conditions composed by the BM team  Private label product must be a different size and be displayed adjacent to BM product  Flank attack from Hillsdown [whole turkey mkt], Unigate [turkey meat supplier], and smaller competitors in new regions we attempt to penetrate (pg. 210)
  • 102. GROWTH STRATEGY  Expand further into Europe  Also provide B2B service and not just B2C, by undertaking Food Service contracts with coporations and schools  Sell the technology on expiring patents
  • 103. BM TURKEY SHARE METRICS 18% 15% 11% 21% 5% 30% UK Whole Turkey Share by Volume Hillsdown Matthews Swift Sainsbury Marks & Spencer Private Labels 0 10 20 30 40 50 60 Hillsdown Matthews Swift Sainsbury Marks & Spencer Private Labels 31 26 19 36 9 52 by Tonnes ('000) ProducerName UK Whole Turkey Share by Tonnes ('000) Series1
  • 104. THE MARKET SELECTIVITY HIERARCHY Market Selection: Poultry, Red Meat, Fish Segment Selection: Whole Turkey, Roasts, Food Services Niche Selection: Turkey Roasts & Other Value Added Products across all protein choices Customer Selection: Industry Selection: Food (proteins)
  • 105. STRATEGIES COMPETITORS  HILLSDOWN HOLDINGS: Purchasing failing competitors to expand capacity and gain access to additional brand names - operate high volume low margin.  UNIGATE: Focus on supplying turkey meets to other companies.  Smaller 2nd tier players: Concentration on production of whole birds and basic value added products. RETAILERS / MARKS AND SPENCER, SAINSBURY, TESCO, GATEWAY, ARGYLL  Develop multiple sources of supply to weaken the relative position of individual manufacturers and ensure lower prices BM STRATEGIES Permanently develop potential value added products Purchase failing competitors - additional facilities, market share, differentiation Series of new products that allowed a more complete use of turkey meat. Company´s marketing: understand the consumers and develop new, innovative products suited to the changing marketplace. How to stay close to the consumer - Based on Vision, motivation, differing levels of backward integration and learning from experience.
  • 106. COMPETITIVE FORCES Competitive Rivalry - High Standards production - Extensive market research to develop next breakthrough - Strong brand identity - Differentiated products - Cost position compared to main competitors - Saturated market - Hillsdown Holdings (whole turkey segment) - Unigate Potential Entrants - Regulations differ between countries and sometimes states - Patent protection in the U.S. - Retailers Substitutes - Chicken market Supplier Leverage - No suppliers, BM controls all the production processes from the breeding and rearing right through to the end product. Buyer Leverage - Development of the mini turkey - Innovative products developed making turkey a more everyday meat Turkey Horizontal Competition: BM seeks to gain competitive advantage versus other firms.
  • 107. COMPETITIVE FORCES - TURKEY - Regulations differ between countries and sometimes states - Patent protection in the U.S. - Retailers Potential Entrant Competitive Rivalry - High Standards production - Extensive market research to develop next breakthrough - Strong brand identity - Differentiated products - Cost position compared to main competitors - Saturated market - Hillsdown Holdings - Unigate Substitutes - Chicken market Buyer Leverage - Development of the mini turkey - Innovative products developed making turkey a more everyday meat Supplier Leverage - No suppliers, BM controls all the production processes from the breeding and rearing right through to the end product.
  • 108. COMPETITIVE FORCES – RED MEAT - Slow product development - Patent protection in the US - Required technology - European Competition?? Potential Entrant Competitive Rivalry - Competitors became more responsive to market trends. - Maintain products without additional investment - Joint Ventures Substitutes - Unprocessed red meat - Turkey - Chicken - Fish Buyer Leverage - Overall demand for red meat fell - Retailer power Supplier Leverage - Contracted lamb of New Zealand
  • 109. COMPETITIVE FORCES Competitive Rivalry - Competitors became more responsive to market trends. - Maintain products without additional investment - Joint Ventures Potential Entrants - Slow product development - Patent protection in the US - Required technology - European Competition?? Substitutes - Unprocessed red meat - Turkey - Chicken - Fish Supplier Leverage - Contracted lamb of New Zealand Buyer Leverage - Overall demand for red meat fell - Retailer power Processed red Meat Market (lamb, pork, beef)
  • 110. BERNARD MATTHEWS PRODUCTIVE PROCESS
  • 111. CREATING STRATEGIES IN EVOLUTIONARY MARKETS BM saw significant potential in overseas markets. While Europe offered tremendous potential for the company, it would take time before these sales became a large percentage of total revenues.
  • 112. 3 MAIN OPERATING COMPANIES United Kingdom-based Bernard Matthews Limited Germany-based Bernard Matthews Oldenburg Hungary-based Saga Foods Based in the East of England and produces a range of fresh, cooked and frozen turkey products which it sells across the UK. It employs around 2,200 staff and farms around 7 million turkeys per annum. Based in the north of Germany and employs around 130 staff. It produces a range of fresh, cooked and frozen poultry products which it sells across Germany and northern Europe Saga Foods is based in northwest Hungary and employs around 800 staff. It produces a range of poultry products which it sells across Central Europe
  • 113. ADVANTAGES It is easier to gain share in growing markets:  Share gains in growing markets have greater long-run value  Growth markets experience less price pressure  Early entrants gain experience advantages  Early entrants gain technologically  Early can deter potential competitors
  • 114. DISADVANTAGES  Too many competitors may enter  Technology may change  Resource needs are high  The promised growth may not arrive  Key success factors may change
  • 115. BM PRODUCTS Product Category Products Supply % of Profits % of Sales Profitability % Market Share Turkey Processed - Turkey Sausage 21 Turkey Farms, Feed mill (80%+) 51% (1985 all processed)- >48% (1986) 28% of UK Frozen Sausage in 1st yr. 50% (1986) of 120M pounds Whole Turkey – Oven Ready 21 Turkey Farms, Feed mill (80%+) 19% (1985)->18% (1986) Loss for year (1988) 25% (1986) of 120M pounds -> 26% (1989) (#1 per Brand but Hillsdown #1 if PL included) Red Meat Beef, Mini-Beef 24% (1985 all red meat)->34% (1986 for red meats) 1% (1986) of 1900M pounds Lamb Cutlets, Mini- kievs, Mini-lamb 3% (1986) of 600M pounds Pork, Mini-pork 2% (1986) of 600M pounds Chicken 1.5% (1986) of 600M pounds Fish (Norfolk Bay) Shaped Fish Pieces Contract large fishing fleet 4% of 84M pound Fish Finger Market Sea Pearls (Mini- kievs) Contract large fishing fleet Food Service 10% (1990) Technology License Private Label 5% (1990) European Market 5% (1990) UK Processed Market 57.5% (1986)-> 75% (1989)
  • 116. COMPETITORS Competitors Strengths Weakness BM Fully integrated for Turkey (Quick response, Quality Control, Lower cost) Cost leader in Turkey Technologically Advanced (Speed, automation, cost) Efficient Process Leader in value-add Brand recognition in UK Strong Marketing, Strong Prod Development, Patents (Roast, Co-extrusion Process) #1 in Turkey in EC 5% extra margin per Turkey pounds (1.96 for Private label vs 2.07 BM) No presence beyond UK No brand value beyond UK Don‟t understand Europe‟s tastes No relation in Europe France weird Hillsdown Holdings Leading market share in whole turkey Commodity at low cost (High Volume, Low-margin, minimum O/H) Private Label relationship Expand via buying failing companies New Vaue Add Brand name w/ purchase of Swift Butterball Less integrated Unigate Large food and transport company in US and Europe w/ $4B annual rev. Only turkey in the meat space. Exited from value add & oven ready Sun Valley Part of giant US feeding company Cargill Other regional players Whole birds, basic value-add Highly Labor intensive Supermarket Groups 60% of food sales by 5 Supermarket groups (Strong buyer power) Retailers fighting each other as UK market near saturation; High %margin attracting foreign companies French Relationship with small farmers Major consumer of grain Received EC grants => Build Export Market French – Doux S.A Largest combined chicken & turkey producer in Europe, 3rd largest in the world Commodity sales Strong non-EC market (Middle East) 85% owned by Doux family (swift decision)
  • 117. MARKET ANALYSIS Country Category Size UK 2 or few per family 50% of Population UK Beef Market $1.9B pounds (Early 1980s) UK Food Service 3.5M meals per day UK Fish Market 1795M pounds (1989) Fish- Processed and shell 220M pounds (1988) Fish-prepared incl products 605M pounds (1988) Frozen – incl products 415M pounds (1988) UK Beef 18.9KG per capita (1988) Chicken 16.7kg per capita(1988) Pork 14KG per capita(1988) Lamb 6.5KG per capita(1988) Turkey 2.8kg per capita(1988)->3.4 (1989) of 56.8M population France Turkey 4.9kg per capita(1989) of 55.5M population Europe except UK Turkey Look at Exhibit 13 Europe Turkey Sales 90% of Market is Unprocessed
  • 118. PERFORMANCE QUALITIES Performance Categories BM Hillsdale Unigate Price Lowest ? ? Small Size Smallest Convenienc e Most Variety Most Freshness Best Low cook loss (Shrinkage) Best Easier to cook Best Taste Best
  • 119. ISSUES Issue Options Export/Enter EC Market Use existing Brand Develop new Brand Private labels Build breeding/processing in mainland Identify Consumer needs Low-calorie Free range chickens Efficiency and reduce cost Utilize Tech Expertise Sell Technology to small group of countries Sell Technology to all countries Fighting retailers
  • 120. -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 -1.00.01.02.03.04.0 UKMarketGrowth Relative Market Position BCG Product Portfolio
  • 121. Product line Market share Market growth UK Whole Turkey 1987 15%/29% = 0.52 (Hillsdown + Swift) UK Total Turkeys hatched 1989 27%/29% = 0.93 Oven Ready Turkey 1989 19%/26% = 1.37 Case p. 26
  • 122. HHI COMPETITION INDEX Segment HHI, top 4 market players Market Shares top 4 market players UK Whole Turkey 1111 21, 18, 15, 11 Estimated Total Turkeys Hatched UK 2279 29, 27, 22, 15 Oven Ready Turkey 1258 26, 19, 14, 5
  • 123. PAYOFF MATRIX NEW ENTRANT Not enter Enter EC Enter Germany Enter France
  • 124. Direct competitor s Indirect Competitors Emerging or potential competitors US & European Continental Producers Private Label Competition Substitutes
  • 125. Turkey market Need States Quality/Price Distribution Whole Turkey Processed Turkey Private label BrandedNo label Supermarkets Oven ready turkey Other retailers Sales market UK European Community Overseas Read Meats Chicken Fish 4P‘s
  • 126. Turkey market Need States Quality/Price Distribution Whole Turkey Processed Turkey Private label BrandedNo label Supermarkets Oven ready turkey Other retailers Sales market UK European Community Overseas Read Meats Chicken Fish 4P‘s
  • 127. Company Facts Bernard Matthews One of the lowest cost producers; high process capabilities; innovative Hillsdown (Buxted/Twydale) + from 1990 Swift Largest competitor, leading in whole turkeys; buying failing competitors -> capacity/brand, aim produce low cost; less integrated then BM -> High volume, low margin 1990: Bought Butterbull (wanna enter value-added),Interest in European business whole birds and UK private label business Doux S.A. French, family-owned, largest chicken producer in Europe Sun Valley Wholly owned UK poultry subsidiary of giant US feed company Cargill (- > high feed prices) Unigate Large food and transport company with interests in US and Europe. Annual revenues over $4billion Smaller second-tier competitors Were used to replace BM in chicken market by retailers for privat labels Private label Increasing importance in UK market, due to high retailer power and retailers„ wish to increase margins In general: High cost of cereal-based feed inputs in European Community
  • 128. http://www.telegraph.co.uk/foo danddrink/foodanddrinknews/8 162189/Bernard-Matthews- analysis-from-20-chicks-to- seven-million-turkeys.html http://www.google.co.uk/search?hl=de&qscrl=1&rlz=1T4LENP_deDE496DE498&q=turkey+under+attac k&ion=1&bav=on.2,or.r_qf.&bvm=bv.44770516,d.dmQ&biw=1600&bih=722&um=1&ie=UTF- 8&tbm=isch&source=og&sa=N&tab=wi&ei=Y- ddUbPXFe610QGf6YHoCQ#um=1&hl=de&qscrl=1&rlz=1T4LENP_deDE496DE498&tbm=isch&sa=1&q=an imal+turkey+cartoon&oq=animal+turkey+cartoon&gs_l=img.3...4210.12445.2.12700.54.41.0.0.0.8.167.3 067.30j10.40.0...0.0...1c.1.8.img.qsg1dsQKhLU&bav=on.2,or.r_qf.&bvm=bv.44770516,d.dmQ&fp=d3211 93b3e6f96fa&biw=1600&bih=722&imgrc=GaxILSrHIYVbwM%3A%3BciLhbsmyQcIaPM%3Bhttp%253A%25 2F%252Fd1mpb3f4gq7nrb.cloudfront.net%252Fimg%252Ftoons%252Fcartoon4243.png%3Bhttp%253A% 252F%252Fwww.andertoons.com%252Fturkey%252Fcartoon%252F4243%252Fi-think-i-figured-out-whats- causing-your-narcolepsy-youre-full-of-tryptophan%252F%3B480%3B360 http://www.google.co.uk/search?aq=&hl=de&rlz=1T4LENP_deDE 496DE498&q=bernard+matthews&um=1&ie=UTF- 8&tbm=isch&source=og&sa=N&tab=wi&ei=VOhdUdf- FpHH0AH2p4G4Cw&biw=1600&bih=722&sei=VuhdUceXO8rZ0wH xgIGgDQ#imgrc=Dx195R60qinHZM%3A%3BYQKk__pcJm8YzM%3 Bhttp%253A%252F%252Fwww.toonsup.com%252Fusers%252Fs%25 2Fsimonmackie%252Fbernard_matthews_101127_1551.jpg%3Bhtt p%253A%252F%252Fwww.toonsup.com%252Fcomics%252Fberna rd_matthews%3B800%3B526
  • 129. http://www.youtube.com/watch?v=_Q p2npH0fLo
  • 130. http://www.barking- moonbat.com/index.php/weblog/2009 /11/P14/ http://www.funny-lolz.com/ready-for- thanksgiving/thin-turkey/
  • 131. Whole Turkey Processed Turkey Beef Lamb Pork Chicken Fish -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 -1.0-0.50.00.51.01.52.02.53.03.54.0 UKMarketGrowth Relative Market Position BCG Product Portfolio Growth rate assumptions determined by per capita consumption trends
  • 132. WHAT DOES BCG PRODUCT PORTFOLIO TELL US?  Strive to maintain share dominance in processed turkey products until it becomes a cash cow  Use extra funding from turkey products to strengthen fish, chicken and whole turkey competitive positioning  Maintain red meat products without additional investments when possible or divest  Very simplistic results; not that helpful
  • 133. GROWTH RATE AS PROXY FOR INDUSTRY ATTRACTIVENESS IS LIMITING Competitive Rivalry Supplier Power Customer Power Threat of Substitutes Threat of New Entry Market Growth Overall Attractiveness UK Oven Ready Mini Turkeys High Low High High High High Low Eastern Europe Whole Turkey High Low High High High High Low UK Turkey Roast Low Low High High Low High Medium German Oven Ready Turkey High Low High High High High Low European Self-Baste Turkey Medium Low High High High High Low UK Turkey Sausage Low Low High High Low High Medium UK Turkey Steaks Low Low High High Low High Medium UK Beef Roast Medium Low High High Medium Low Medium UK Pork Roast Medium Low High High Medium Medium Medium UK Lamb Roast Medium Low High High Medium Low Medium UK Mini Chicken High Low High High High High Low UK Fish Products Low Low High High Low High Medium UK Private Label Turkey Low Low High High Low High Low UK Food Service Low Low Medium High High Medium Medium EC Turkey Products Low Low Medium High Low High High
  • 134. RELATIVE MARKET SHARE AS PROXY FOR BM MARKET POSITION IS LIMITING Differentiated Product Cost Advantaged Technology Advantaged Brand Advantage Market Penetration Overall Positioning UK Oven Ready Mini Turkeys Low High Low High Medium Medium Eastern Europe Whole Turkey Low High Low High Low Medium UK Turkey Roast High High High High High High German Oven Ready Turkey Low High Low High Low Medium European Self-Baste Turkey Low High Medium High Medium Medium UK Turkey Sausage High High High High High High UK Turkey Steaks High High High High High High UK Beef Roast Medium Medium High Low Low Medium UK Pork Roast Medium Medium High Low Low Medium UK Lamb Roast Medium Medium High Low Low Medium UK Mini Chicken Medium Medium Low Low Low Medium UK Fish Products High Medium High Low Low High UK Private Label Turkey Low Medium Low Low Low Low UK Food Service High High High Medium Low High EC Turkey Products High High High Medium Low High
  • 135. UK Mini-Turkeys UK Lamb Roast UK Turkey Steaks UK Beef Roast EC Self-Baste Turkey UK Turkey Sausage UK Turkey Roast German Mini-Turkey UK Pork RoastEastern Europe Mini-Turkey UK Mini-Chicken UK Fish Products UK Private Label Turkey UK Food Service EC Turkey Products -5 -4 -3 -2 -1 0 1 2 3 4 5 6 -3 -2 -1 0 1 2 3 Company’sCompetitivePosition Prospects for Market-Sector Profitability Unattractive Average Attractive Strong Average Weak The Directional Policy Matrix
  • 136. WHAT DOES DIRECTIONAL POLICY MATRIX TELL US?  Leaders: UK Turkey Products (roast, steak, sausage)  Maintain position  Extra resources may be needed to expand capacity  Try Harder: UK Fish Products & European Community Turkey Products (when feasible)  Judicious application of resources to move product to leadership  Extra resources may be needed to grow  Double or Quit: UK Private Label Turkey  No future in private labels so quit  Growth: UK Food Service  Investments should be made to allow the product to grow with the market  Generally should be self-sufficient  Proceed with Care: UK Pork Roast & European Community Self-Baste Whole Turkey  Major investments should be made with extreme caution  Phased Withdrawal: UK Mini-Turkeys, UK Lamb & Beef Roast, Eastern European & German Mini-Turkeys  Realize the value of the assets on a controlled basis to make the resources available for redeployment elsewhere  Disinvestment: UK Mini-Chicken
  • 137. UK Mini-Turkeys UK Lamb Roast UK Turkey Steaks UK Beef Roast EC Self-Baste Turkey UK Turkey Sausage UK Turkey Roast German Mini-Turkey UK Pork RoastEastern Europe Mini-Turkey UK Mini-Chicken UK Fish Products UK Private Label Turkey UK Food Service EC Turkey Products -5 -4 -3 -2 -1 0 1 2 3 4 5 6 -3 -2 -1 0 1 2 3 CorporateStrengths Market Attractiveness Low Medium High High Medium Low Attractiveness/Strength Matrix
  • 138. WHAT DOES ATTRACTIVENESS/STRENGTH MATRIX TELL US?  All-out struggle: UK Turkey Products (roast, steak, sausage)  Concentrate entire effort on maintaining strength  If necessary, maintain profit structure by investment  Selective Growth: UK Fish Products & European Community Turkey Products (when feasible)  Concentrate investments in areas where strength can be maintained  Serious entry into market: UK Private Label Turkey  Withdraw as sustainable growth is lacking for private labels due to retailer power  Maintenance of superiority: UK Food Service  Build up ability to counter competition, avoiding large-scale investment  Emphasize profitability by raising productivity  Selective expansion: UK Pork Roast & European Community Self-Baste Whole Turkey  Concentrate investment and expand only in segments where profitability is good and risk is relatively low  Overall harvesting: UK Mini-Turkeys, UK Lamb & Beef Roast, Eastern European & German Mini-Turkeys  Promote switch from fixed to variable costs  Emphasize profitability through value analysis and value engineering of variable costs  Loss-minimizing: UK Mini-Chicken  Prevent losses before they occur by avoiding investment and lowering fixed costs  When loss is unavoidable, withdraw
  • 139. THE LIFE-CYCLE PORTFOLIO MATRIX Embryoni c Growth Mature Aging Dominant UK Turkey Roast UK Turkey Steak UK Turkey Sausage Strong Favorable UK Food Service EC Turkey Products EC Self-Baste Turkey UK Mini-Turkeys Tenable UK Fish Products UK Lamb Roast UK Pork Roast UK Beef Roast Eastern European Mini-Turkeys German Mini-Turkeys Weak UK Mini-Chicken Nonviable UK Pet Food Review with per capita consumption trend
  • 140. WHAT DOES LIFE-CYCLE PORTFOLIO MATRIX TELL US?  UK Turkey Products (roast, steak, sausage)  Hold position and grow with industry  Reinvest as necessary  UK Mini-Turkeys, European Community Self-Baste Whole Turkey, UK Food Service & European Community Turkey Products (when feasible)  Custodial or maintenance strategy  Find niche and attempt to protect  Minimum and/or selective reinvestment  UK Fish Products, UK Pork Roast, UK Lamb Roast, UK Beef Roast, Eastern European & German Mini-Turkeys  Find niche and hang on  Phased withdrawal when necessary  UK Mini-Chicken  Turnaround or phased withdrawal  Invest selectively or disinvest
  • 141. BM FOLLOWS AN ADAPTIVE STRATEGY  ADAPTIVE strategy: “Concerned with the development of a viable match between the opportunities present in the external environment and the organization‟s capabilities and resources for exploiting these opportunities”  For example, BM entered UK Beef Roast market because it saw an opportunity to use its co- extrusion technology (resources) to exploit the trend for modern families of looking for convenient smaller portions and value for money (external environment)
  • 142. BM DOES NOT SEEM TO FOLLOW A PROCESS OF NORMATIVE MODEL OF STRATEGY  A NORMATIVE model is logical, rational, comprehensive and relies on a formal strategic planning process that is linear and analytic: situation assessment, strategy generation, strategy selection, and implementation • “Matthews relied on his own belief in the potential for turkey rolls, not market research reports or analysts‟ sales forecasts” • “Turkey roll machinery was bought before anyone knew if it could work”
  • 143. NO EVIDENCE OF BM USING A CONSTITUENCY-BASED MODEL OF STRATEGY  A CONSTITUENCY-BASED model suggests that the major functional areas of a business be viewed as specialists in providing particular resources for the firm from external sources and strategy is formulated by each area promoting the best course of strategy for own strategy as best for the entire organization  No evidence of Farming, Processing and Production, and Marketing following this type of model for BM. Decisions seem to be centralized.
  • 144. BM FOLLOWS THE PROACTIVE MODEL OF STRATEGY  Strategy is based on visions (what do we want to happen) rather than forecasts (what do we think is going to happen)  For example, “(Matthews) believed that being the best at what you do could not be confined solely to an obsession with cost containment. He wanted to go further and develop value-added products”
  • 145. BM FOLLOWS THE MEANS- WAYS-ENDS MODEL OF STRATEGY  The company focuses on building capabilities and then encouraging the development of plans for exploiting them  After BM invested heavily in the roast and co- extrusion process technology, it has been opportunistically focused on exploiting other market opportunities as they developed: beef, lamb, fish
  • 146. BM FOLLOWS THE LEVERAGE APPROACH MODEL OF STRATEGY  The company focuses on building and leveraging the “core competence” of the business and then set out to leverage that competence through a clearly articulated “strategic intent”  “BM built its position on innovative, heavily branded products and needed to stay innovative, stay close to the consumer, and use pull advertising to ensure its products were must stock items in every supermarket”
  • 147. BM STRATEGY FORMULATION PROCESS  “Good strategy formulation process is those which blend both models (normative and behavioral), using normative, planning model for the ongoing fine tuning of existing strategies and as the support system for the incremental approach used when new strategies or major changes in strategic direction are needed”  BM might do well to add some normative aspects to their strategy formulation process
  • 148. Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis Rise Of The Private Label Feast Or Famine Retailers are pushing manufacturers to supply private label products, sometimes at the expense of the manufacturer’s branded product Manufacturer’s Dilemma Pros Cons • Less overhead costs • Less control over product(s) • Shared packaging risks • Highly competitive space • Guaranteed volumes across multiple retail outlets • Meager margins • No marketing/branding spend • Less resources available to manage branded products • Zero brand recognition Private label turkey manufacturers are leaving their fates in the hands of retailers
  • 149. Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis UK Turkey Market Concentration Levels #1 Bernard Matthews #2 Hillsdown Rank: EC Turkey Meat Producers (1990) #1 Doux S.A. Rank: EC Poultry Producers (1990) #1 Louis Rich (US Company) #2 ConAgra (US Company) #3 Bernard Matthews Rank: Processed Turkey Sales (1990) Segment HHI, Top 4 market players Market Shares Top 4 market players (percentages) UK Whole Turkey 1111 21, 18, 15, 11 Estimated Total Turkeys Hatched UK 2279 29, 27, 22, 15 Oven Ready Turkey 1258 26, 19, 14, 5
  • 150. Bernard Matthews Focused On Processed Turkeys  In 1986, Matthews profits for processed turkey were 271% higher than those of whole turkeys  Sales for roasts (inclusive of both turkey and beef) reached record highs in 1986-87, surpassing the £50M mark for two consecutive years  By 1989, Matthews share of the processed turkey market was approximately 75% Recommendation Strategic Alternatives Recommendation Preview Strategic Situation Analysis